Tacoma Narrows Bridge Toll Work Group Recommendations

Tacoma Narrows Bridge Toll Work Group Recommendations

Early morning light illuminates the Tacoma Narrows Bridges Olympic Mountains in the background

Over the last year I’ve joined a group of local leaders to find a way to keep Tacoma Narrows Bridge tolls from continuing to increase. We’ve finalized the details on our recommendations to the Legislature and Transportation so I thought I’d share them here.

The short version is this, we have a path to cap tolls at their present level for the duration of the bonds. It will require appropriation from the Transportation Fund to the TNB Toll Account which means we’ll need to convince legislators from outside the region. While this is not an simple task, I think we have demonstrated that TNB tollpayers deserve a fairer deal.

Executive Summary

Work Group Introduction

The Washington State Transportation Commission (Commission) created the Tacoma Narrows Bridge Work Group at the direction of the Washington State Legislature, with authorizing language included in the 2017-2019 biennium transportation budget. In authorizing the Work Group the Legislature cited, “a need for long-term toll payer relief from increasing toll rates on the Tacoma Narrows Bridge.”

Based on the authorizing language and guidance from Commission staff, the Work Group defined their mission and objective during the first Work Group meeting (August 1, 2017) as follows:

Mission: Long-term toll payer relief from increasing toll rates on the Tacoma Narrows Bridge

Objective: Identify preferred and prioritized policy solutions providing long-term toll payer relief for users of the Tacoma Narrows Bridge

Work Group Participants & Process

In accordance with the the 2017 budget language directing the formation of the Work Group, the Commission cast a broad net for participation. Invited participants included:

  • All members of the legislative delegations immediately abutting the Tacoma Narrows Bridge
  • Representatives of the Tacoma and Gig Harbor Chambers of Commerce
  • Mayors from Gig Harbor, Tacoma, and University Place
  • Members of the Kitsap and Pierce County Councils with the Tacoma Narrows Bridge in their district
  • Representation from Pierce Transit. Two members of the TNB Citizen Advisory Committee were invited to participate
  • One Commissioner from the Commission’s Tolling Subcommittee.

On the request of the Work Group, additional representation was added from the social services community, Representative Jake Fey from District 27 (Tacoma), and representation from the Port Orchard Chamber of Commerce and City Council.

The Commission selected Bruce Beckett, Chair of the TNB Citizen Advisory Committee and Washington State Transportation Commissioner Shiv Batra as Co-Chairs for the Work Group.

The Work Group met four times between August 1, 2017 – December 1, 2017. All meetings took place in either Gig Harbor or Tacoma in an effort to facilitate participation by the local participants.

Work Group participants brought a diverse set of backgrounds and TNB knowledge. To facilitate decision-making, the Work Group meetings were designed to both inform about the TNB facility, performance, and financials with presentations by Commission and WSDOT staff, and to encourage an active discussion between Work Group participants. Below is a summary of meeting tasks:

  • Established Work Group mission & intent. (meeting 1)
  • Reviewed history of TNB performance, rate-setting, and financial support. (Meeting 1)
  • Updated and assessed toll payer relief scenarios from the 2014 Joint Transportation Committee’s Report on TNB Internal Refinance Opportunities. (meeting 1 & 2)
  • Identified and advanced toll payer relief scenarios for consideration. (meeting 2 & 3)
  • Updated analysis based on current traffic and revenue forecasts and TNB financial plan (meeting 3 & 4)
  • Agreed to problem statement (meeting 4)
  • Finalized prioritized financial and policy solutions. (meeting 4)
  • Approved submittal of final report to the transportation committees of the legislature by January 5, 2018

Summary of Findings

The 2017 budget language directing the Commission to form the work group instructed it to “review, update, add to as necessary, and comment on various scenarios for toll payer relief outlined in the 2014 Joint Transportation Committee (JTC) report on internal refinance opportunities for the Tacoma Narrows bridge,” and to “submit a report with its preferred and prioritized policy solutions.” With this direction, Commission and Washington State Department of Transportation (WSDOT) staff worked with the Work Group to first update and assess the JTC scenarios, and then to establish proposed solutions.

As a foundation for selecting and prioritizing preferred policy solutions, the Work Group agreed to a problem statement and objectives described below.

Problem Statement: $125 million in remaining debt service increases

The TNB Work Group identified the remaining $125 million in debt service increases as the primary problem to address for reducing the financial burden for TNB bridge toll payers. While the Work Group is looking to address the future impacts of this problem, it also identifies this as a problem that has contributed to rising toll rates since the opening of the facility in July 2007.

The TNB facility is set apart from other Washington State tolling facilities because of its escalating debt service structure. Such a financing structure is not consistent with best practices, and is not supported by the Washington State Office of the State Treasurer. In addition, this debt service structure was born out of a decision by the Legislature to fund construction of the bridge without state tax dollars. As a result, toll revenue is responsible for 99% of bridge construction, as well as the associated interest payments, and other associated debt service costs. This is compared to about 72% of comparable construction costs for the SR 520 bridge paid for with toll revenues. Together, these represent a clear inequity for TNB toll rate payers.

Finally, addressing the remaining debt service increases applies lessons learned from the impacts of the Great Recession. During this time, escalating debt service costs drove nearly annual increases in the value of financial obligations paid for with toll revenue. At the same time, traffic volumes and the ability of users to afford tolls decreased. Though driven by global economic crisis, the burden of this loss in potential toll revenues was borne by the TNB toll payers. Providing non-toll revenues to support level debt service costs for the remainder of the repayment schedule will help reduce this burden, and help mitigate the potential of such impacts from future recessions.

The TNB Work Group arrived at this problem statement after consideration of the TNB rate-setting history, analysis developed for scenarios developed by the JTC in the 2014 report, analysis of current conditions prepared by Commission and WSDOT Toll Division staff, and additional input from the Work Group members, from staff, and members of the public attending the work group meetings. Other costs and issues considered are documented in the findings section of this report, and many are included for legislative consideration as additional options to support cost reduction and toll payer relief.

A request for $125 million is equivalent to only 10% of total costs remaining over the life of the current bonds, and for the repayment of deferred sales tax immediately to follow. TNB toll revenue is expected to pay nearly all of the remaining 90% of costs. Therefore, this request meets the intent of the proviso to provide toll payer relief, while not wholly shifting the burden of the costs away from the TNB toll rate payers.

Objectives for Selecting Scenarios

As the Work Group reviewed and discussed the JTC Scenarios, the participants identified several objectives that they sought to accomplish to ensure their recommendations addressed the policy statement in a way that supports long-term toll payer relief. These objectives guided the Work Group when identifying how to proceed with the JTC Scenarios, and on developing new scenarios.

Maintain toll rates at FY 2018 levels.

The Work Group established that maintaining current toll rates would serve to address the impact of historical and future inequity caused by the escalating debt service, and decisions that led to this debt repayment schedule as a means to fund construction costs without using state tax dollars.

The Work Group considered preliminary assessments of selected scenarios paired with rate increases ranging from $0.25 – $0.75, and discussed the need for the Commission to raise rates by FY 2020 if the Legislature did not provide sufficient non-toll revenues for the TNB account. However, the Work Group opted to establish that policy solutions should maintain current toll rates, as it meets the direction of the proviso to provide long-term toll payer relief for users of the TNB facility, and sends a clear message to rate payers that the state recognizes the burden caused by escalating toll rates and construction funding choices.

Pursue a transfer of funds with no repayment from toll revenues.

In pursuing funding without repayment from toll revenues, the Work Group sought solutions that would not extend the burden of tolling longer than existing repayment schedules, while ensuring the capacity repay the deferred sales tax by no later than FY 2032.

The Work Group made this choice after considering preliminary assessments of selected scenarios with loan repayment options for FY 2031 – FY 2032, and after discussing the potential for extending that repayment past FY 2032. For example, while toll revenue is projected to be available in FY 2031 – FY 2032 to repay proposed levels of funding, the Work Group sought to retain the opportunity to repay the deferred sales tax in FY 2031. The Work Group also cited the costs of extending tolling that would add to the overall burden on TNB rate payers.

Funding to address immediate financial needs in the next 1-2 biennia.

Without financial support, WSDOT and the Commission project TNB toll rates to increase in FY 2020. This will be necessary to address escalating costs, including debt service increases, repair & replacement costs, and vendor operations costs.

Long-term plan to address increasing debt service costs

The Legislature should declare or indicate its intent on how to use provided funds consistent with addressing the problem statement of increasing debt service costs, while supporting the capacity to maintain current toll rates.

Direction from Work Group on Updated JTC Scenarios

With the problem statement and objectives in mind, the Work Group did not seek to move forward with all elements of any of the seven JTC Scenarios. Elements that led the Work Group not to pursue the JTC Scenarios include proposed repayment of funds with toll revenues, and the inability of a scenario to full meet funding necessary for not increasing toll rates.

Though not electing to move forward with a JTC Scenario, the Work Group did select elements from two scenarios that contributed to recommended funding solutions:

  • JTC Scenario 5: Loan to keep blended toll no higher than $6.00, with loan repaid by toll payers beginning in 2031.

 

  • Work Group Action: Pursued a core element of this scenario in seeking non-toll revenues to maintain a specific toll rate target. However, instead of targeting a blended toll rate of no greater than $6.00, the Work Group sought to maintain rates at the current ($5.24) blended toll rate of $5.24. The Work Group also sought these funds as a “gift” instead of a loan.

 

  • JTC Scenario 6: Loan to offset effect of increasing debt service, with loan repaid by toll payers beginning in 2031.

 

  • Work Group Action: Pursued a core element of this scenario in seeking non-toll revenues to offset the effect of increasing debt service. However, the Work Group sought these funds as a “gift” instead of a loan.

In the course of assessing scenarios, TNB Work Group identified several other scenario elements and other considerations that would not fully address the problem statement and objectives, but would support cost reduction and toll payer relief. These are included in the Recommendations Section as additional recommendations.

New Work Group Scenarios

The Work Group’s consideration of new scenarios began with advancing preferred elements of JTC Scenario 4 to fund non-debt service costs, Scenario 5 to keep toll rates flat, and Scenario 6 to seek funding for offsetting future debt service increases. For each scenario, the Work Group considered total remaining costs, and costs over the first two biennium (FY 2020 – 2023). Additional consideration was given to pairing these options with a toll rate increase to reduce the size of the funding request, but the Work Group would later rule out rate increases as part of a recommended policy solution.

Based on these considerations, the Work Group developed the follow new scenario:

Funding to Offset Future Debt Service Increases with allocation that Enables Keeping Toll Rates at Current Levels (FY 2018)

  Costs Per Biennium
  Offset Debt Service Increases over FY 2018 levels
17-19 Biennium $2,973,650
19-21 Biennium $5,545,650
21-23 Biennium $17,662,150
23-25 Biennium $28,007,900
25-27 Biennium $27,920,150
27-29 Biennium $33,020,850
29-31 Biennium $9,831,350
31-33 Biennium
Total $124,961,700
  Option A: Per Biennium
  Offset Rate Increase
17-19 Biennium (No Rate Increase Necessary)
19-21 Biennium $27,818,773
21-23 Biennium $14,183,188
23-25 Biennium $20,632,495
25-27 Biennium $19,177,590
27-29 Biennium $27,936,387
29-31 Biennium $5,916,103
31-33 Biennium (No Rate Increase Necessary)
Total $115,664,535

 

The Work Group sought an additional option that would provide a long-term plan for addressing the debt service increases, while keeping toll rates at current rates. The result was a scenario requesting up to $125 million to offset future debt service increases, but allocated across the remaining years of tolling at levels that keep toll rates at current levels (FY 2018). This option directly addresses both the Work Group’s problem statement, and the legislative direction to provide long-term toll payer relief from increasing toll rates.

Direction on Additional Recommendations

In the course of assessing scenarios, the TNB Work Group identified several scenario elements and other considerations that would not fully address the problem statement and objectives, but would support cost reduction and toll payer relief. These are included in the Recommendations Section as additional recommendations.

Summary of Recommendations

The TNB Work Group recommendations follow from the established problem statement and objectives. They are also consistent with the mission and intent for the Work Group established by the Legislature. Included are two scenarios for meeting the recommended funding of $125 million, as well as policy bill suggestions that would establish legislative intent for the funding. In addition, the recommendations include options to support cost reduction and toll payer relief.

Funding Recommendations

Funding Scenario 1: Provide $125 million in the 2018 or 2019 legislative session to fund debt service increases for FY 2019 – FY 2030.

This commitment of funds would ensure the Legislature fully addresses the problem statement of increasing debt service costs. At currently forecasted traffic and revenue for the TNB, it would also provide for maintaining current toll rates on the facility with about a $9 million funding cushion.

Full funding could be accompanied by policy direction on the use of these funds, but this step may not be required.

The Work Group recognizes the challenges of identifying $125 million in available funding to dedicate for this purpose by the 2019 legislative session. However, the potential to lock-in this funding in support of addressing this inequity for TNB toll payers makes this the Work Group’s top preference as a funding policy solution.

Funding Scenario 2: Plan for biennial budget provisos totaling $125 million over the remaining term of the bonds.

Scenario 2 addresses the problem statement with biennial funding totaling $125 million over the remaining term of the debt service. The Work Group requests that such funding be distributed at levels projected to maintain current (FY 2018) toll rates, while providing for the TNB account’s sufficiency. For example, funding needs for the next two biennia are projected to be:

    • ~$27.8 million for the 19-21 biennium (FY 2020 – FY 2021)
    • ~$14.2 million for the 21-23 biennium (FY 2022 – FY 2023)

In conjunction with funding for the first 1-2 biennia, the Work Group requests that the legislature pass a policy bill to support continued action by future legislatures, as described in the policy bill scenario section below.

Additional Options to support cost reduction and toll payer relief.

In the course of determining funding recommendations, the TNB Work Group identified several options that would not fully address the problem statement and objectives, but would support cost reduction and toll payer relief. These options are described in the Recommendations section.

Possible Elements of Policy Bill to Establish Long-term Legislative Intent

The Work Group intends one of the following policy bill scenarios be paired with either of the recommended funding scenarios.

Policy Bill Scenario 1: Establish legislative intent for future funding that fully addresses the $125 million in debt service increases, while maintaining current (FY 2018) toll rates.

While the Legislature cannot commit funding in future budgets, a policy bill can establish legislative intent for use of future funds. This policy bill would establish legislative intent in support of fully funding the $125 million in debt service increases, with the funds distributed across biennia as necessary for maintaining current (FY 2018) toll rates.

This is the Work Group’s preferred policy bill scenario, but providing the $125 million as a lump sum (Funding Scenario 1) would make such a policy bill optional.

Policy Bill Scenario 2: Require biennial mandatory reporting to the Legislature on TNB funding needs from the Commission.

The intent of this policy bill would be to serve as a tool for on-going identification and awareness of TNB funding needs. While not a statement of legislative intent to support full funding for the Work Group’s funding recommendations, this policy bill would support the capacity to secure future funding.

The Legislature could pair this policy bill with either funding scenario, but would particularly add value for a biennial funding approach (Funding Scenario 2).